For more than forty years, the law firm of Robert B. Fitzpatrick, PLLC has been a leading force in employment law. Robert B. Fitzpatrick, PLLC is nationally recognized as a premier employment law firm. The National Law Journal describes senior partner Robert B. Fitzpatrick as among the top employment lawyers in the country. Washingtonian Magazine hails him as "tops in employment law" in the Washington, D.C. area.
-- http://RobertBFitzpatrick.com

Wednesday, June 30, 2010

A “tipped employee” is “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). For examples of types of employees who have been considered to “customarily and regularly” receive tips, see S. Rep. No. 93-690, at 43 (1974); U.S. Department of Labor Wage And Hour Division, Field Operations Handbook, § 30d04(a) (1988); Department of Labor Fact Sheet # 15, available at http://www.dol.gov/whd/regs/compliance/whdfs15.pdf (last visited June 10, 2010).

Tipped employees are subject to the protections of FLSA § 3(m). 29 C.F.R. § 531.57. An employee cannot be assumed to earn more than $30/month in tips because the employee is part of a group of employees who on average make that much in tips. 29 C.F.R. §531.56(c). The regulations define “customarily and regularly” as greater than occasional but less than constant. 29 C.F.R. § 531.57. Thus, an employee can periodically fall below the $30/month requirement and still be considered a “tipped employee.” 29 C.F.R. § 531.57. In any event, the employer must pay at least $2.13 an hour in direct wages.

Monday, June 28, 2010

Section 3(m) of the FLSA and the corresponding regulations allow employers to use a tip credit—paying employees below minimum wage and crediting the tips the employees receive to make up the difference between the hourly wage paid by the employer and the minimum wage. 29 U.S.C § 203(m); 29 C.F.R. §531.59. Thus, a “tip credit” is the amount of an employee’s tips that the employer can use to make up the difference between $2.13 per hour and the $7.25 minimum wage. 29 U.S.C. § 203(m). If an employee’s tips and the wage paid by the employer are less than the prevailing minimum wage, employers are required to make up any difference between the combination of the employee’s hourly rate and tips and the prevailing minimum wage. Davis v. B&S, Inc., 38 F. Supp. 2d 707, 712 (N.D. Ind. 1998) (holding that it is an employer’s obligation to ensure that the tippedemployee receives at least the minimum wage when thedirect wage and his received tips are combined); 29 U.S.C. §203(m).

If an employer elects to use the tip credit provision, the employer must: (1) inform each tipped employee about the tip credit allowance (including amount to be credited) before the credit is utilized and (2) be able to show that the employee receives at least the minimum wage when direct wages and the tip credit allowance are combined. Winans v. W.A.S., Inc., 772 P.2d 1001 (Wash. 1989).

Over the next two week we'll be posting a multi-part series on the treatment of tips under the Fair Labor Standards Act. First, an introduction:

Generally, the FLSA requires employers to pay a minimum wage of $7.25 per hour. 29 U.S.C. § 206(A)(i)(c). The FLSA permits employers to pay a so-called “direct wage” of $2.13 per hour to employees who are considered “tipped employees” (29 U.S.C. § 203(m)), so long as employees earns sufficient tips to meet the $7.25 per hour minimum wage requirement. Where tips do not make up the difference, the employer must supplement so the employee receives no less than the full minimum wage for all hours worked.

Our postings will address the following key topics relating to tips and the FLSA:

Friday, June 25, 2010

Often, in settling misclassification claims, employers argue that they should be permitted to use the fluctuating workweek method for calculating overtime on the ground that the misclassified worker meets the test for use of the fluctuating workweek method of determining overtime. Several circuits have adopted this approach and held that employees who meet the requirements for being paid overtime under the fluctuating workweek method should have their damages in misclassification cases calculated according to that method. Clements v. Serco, 530 F.3d 1224 (10th Cir. 2008) (holding the only clear mutual understanding required by statute is a fixed salary for fluctuating hours, not an understanding regarding payment of overtime, and using the fluctuating workweek method to calculate damages); Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir. 1999) (holding that there was a clear mutual understanding that “Valerio’s fixed salary would be compensation for however many hours she worked each week” and affirming the district court’s use of the fluctuating workweek method of calculating overtime); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138–39 (5th Cir. 1988) (finding that when employer and employee have agreed on fixed salary for varying hours, method of computation calls for dividing actual hours worked each workweek into fixed salary). But see, Rainey v. American Forest and Paper Ass’n, Inc., 26 F. Supp. 2d 100, 101 (D. D.C. 1998) (holding that Blackmon“was not supported by any explanation or effort to analyze the relevant statutory and regulatory language”); In re Texas EZPawn Fair Labor Standards Act Litigation, 2008 WL 2513682, at *7 (W.D.Tex. June 18, 2008) (rejecting Blackmon as“fundamentally flawed” because “[i]t was supported by no discussion or analysis of theissues, and assumed—wrongly—that § 778.114 has the force of law”); Cowan v. Treetop Enters., 163 F. Supp. 2d 930 (M.D. Tenn. Aug. 16, 2001) (rejecting Blackmon’s retroactive application of the fluctuating workweek).

Plaintiffs argue that such an approach ignores the plain language or the regulation and the need to interpret exceptions to the FLSA’s remedial goals narrowly. Some courts have agreed with plaintiffs making these arguments and held that the fluctuating work week method cannot be used to calculate damages in misclassification cases. For example, in Brown v. Nipper Auto Parts, 2009 U.S. Dist. LEXIS 43213 (W.D. Va. May 21, 2009), the court was faced with cross motions for summary judgment pertaining to whether Plaintiff was exempt from the FLSA’s overtime provisions and, if not, whether the employer could use the fluctuating workweek basis for paying unpaid overtime. The court held that since the misclassified worker did not meet the requirements for being paid using the fluctuating workweek, then the employer could not use the fluctuating workweek method to calculate the overtime due. The court ordered overtime pay at one and one-half times plaintiff’s regular rate. Other cases that have addressed the issue of whether in the settlement of a misclassification case the employer can use the fluctuating workweek method of determining overtime include:

·Monahan v. Emerald Performance Materials, LLC, 2010 U.S. Dist. LEXIS 17034 (W.D. Wash. Feb. 25, 2010) (holding that overtime must be calculated at the time-and-a-half rate as there was no “clear mutual understanding” that overtime would be calculated with the fluctuating workweek method).

·Russell v. Wells Fargo and Co., 672 F. Supp. 2d 1008 (N.D. Cal. Nov. 17, 2009) (“If Defendants’ position [seeking to apply the fluctuating workweek method in a misclassification case] were adopted, an employer, after being held liable for FLSA violations, would be able unilaterally to choose to pay employees their unpaid overtime premium under the more employer-friendly of the two calculation methods. Given the remedial purpose of the FLSA, it would be incongruous to allow employees, who have been illegally deprived of overtime pay, to be shortchanged further by an employer who opts for the discount accommodation intended for a different situation.”).

·Ayers v. SGS Control Servs., Inc. U.S. Dist. LEXIS 76539, at *2 (S.D.N.Y. Oct. 9, 2007) (“Ayers II”) (holding that as the defendant had violated the fixed salary requirement of the fluctuating workweek method, it could not have damages calculated under the fluctuating workweek method).

·Cowan v. Treetop Enters., 163 F. Supp. 2d 930 (M.D. Tenn. Aug. 16, 2001). “The Defendants’ prior assertion of exempt status for these employees and the lack of contemporaneous payment of the 50% overtime to unit managers bar the Defendants' reliance upon Section 778.114(a) [the regulation allowing for the fluctuating workweek method].” The court also rejected using the fluctuating workweek as the “preponderance of the evidence shows an agreed 10-hour work day schedule.” A fixed weekly schedule is incompatible with the fluctuating workweek method and the proper overtime rate is time and a half.

·Rainey v. American Forest and Paper Ass’n, Inc., 26 F. Supp. 2d 100, 102 (D. D.C. 1998) (“If defendant believed that plaintiff was exempt from § 207(a), such that she was entitled to no overtime compensation, then it was not possible for it to have had a clear mutual understanding with plaintiff that she was subject to a calculation method applicable only to non-exempt employees who are entitled to overtime compensation.”).

·Cash v. Conn Appliances, Inc., 2 F. Supp 2d 884 (E.D. Tex. 1997) (holding that occasional violations of the fluctuating workweek requirements do not result in a broad invalidation of the method when calculating damages).

Between January 14 and 16, 2009, the then-Acting Wage and Hour Administrator issued 35 Opinion Letters. One of these Opinion Letters, FLSA 2009-3 (Jan. 14, 2009), available at http://www.dol.gov/whd/opinion/FLSA/2009/2009_01_14_03_FLSA.pdf, specifically allows for the use of fluctuating workweek method in calculating damages in misclassification cases. Plaintiffs argue that Opinion Letter 2009-3 is not persuasive for the following reasons:

2.It fails to consider that the FLSA is a remedial statute and thus exceptions and exemptions to it should be construed narrowly; and

3.It creates incentives for employers to violate the FLSA as it is cheaper to misclassify an employee and the pay damages calculated by the fluctuating workweek method than to pay an employee time-and-a-half overtime.

If a court find that the fluctuating workweek method should not be used to calculate damages, there remains a question regarding how to calculate the regular hourly rate (which will then be multiplied by 1.5 to determine the overtime rate). Plaintiffs argue that courts should use the 40-hour week (not a higher figure) as the denominator for the calculation. See,e.g., Brumley v. Camin Cargo Control, Inc., 2009 U.S. Dist. LEXIS 126785 (D.N.J. Apr. 22, 2010); Ayers v. SGS Control Servs., Inc. U.S. Dist. LEXIS 76539 (S.D.N.Y. Oct. 9, 2007).

Despite the language of Section 778.114(a), both the DOL and the courts have loosely interpreted the “fluctuation requirement.” The DOL and at least one court have stated that there is no requirement that the employee’s hours of work fluctuate above and below 40 hours in a workweek. 56 WH Admin. Op. (Oct. 27, 1967); Condo v. Sysco Corp. 1 F. 3d 599, 602-603 (7th cir. 1993) (applying the fluctuating workweek method and finding employee worked varying amounts of overtime hours, but not fewer than 40 hours per week). Similarly, the Fourth Circuit in Aiken v. County of Hampton, 172 F. 3d 43 (4th Cir. 1998) (unpublished), held that fluctuating base hours were not necessary and that Section 778.114 applies in situations where fixed base hours were coupled with fluctuating overtime. The court also held that an employer’s schedule need not fluctuate in an unpredictable manner. A year later the Fourth Circuit clarified the requirements for a fluctuating hours plan in Griffin v. Wake County, 142 F. 3d 172 (4th Cir. 1998). The court held that Section 778.114 does not require a schedule to be unpredictable for it to meet the “fluctuation” requirement.

b.Does Working a Set Schedule Preclude Application of the Fluctuating Workweek Method?

·Flood v. New Hanover County, 125 F.3d 249 (4th Cir. 1997); Griffin v. Wake County, 142 F.3d 712 (4th Cir. 1998). In both of these cases, the Fourth Circuit held that the fluctuating workweek method can be used when employees’ workweeks fluctuated but on a fixed, repeating schedule. In these cases, EMTs worked 24 hours on, 24 hours off, 24 hours on, and then 96 hours off. The court held that there is no requirement that the fluctuating hours be unpredictable.

·Aiken v. County of Hampton, 172 F.3d 43 (4th Cir. 1998) (holding that the fluctuating workweek method will apply in situations where fixed base hours are coupled with fluctuating overtime).

However, the Seventh Circuit reached a different result in Heder v. City of Two Rivers, 295 F.3d 777 (7th Cir. 2002). In that case, the court held that because the firefighters never worked less than their required 216 hours over a 27 day period, the fluctuating workweek model could not be applied because “there is no shortfall of time (and correspondingly higher hourly rate) in one pay period that make up for longer work in another.” The court required the city to pay overtime at the time and a half rate.

Wednesday, June 23, 2010

·Arnold v. Kelly’s Café Am., Inc., 2007 U.S. Dist. LEXIS 90623 (W.D. Wash. Aug. 12, 2005) (rejecting fluctuating workweek method in part because employee’s average hourly earnings under fluctuating workweek method were less than the required minimum wage in 19 of the first 20 weeks).

·Aiken v. County of Hampton, 172 F.3d 43 (4th Cir. 1998) (finding employer’s limited use of a minimum wage adjustment did not indicate noncompliance with minimum wage requirements for use of fluctuating workweek method).

Tuesday, June 22, 2010

The Department of Labor issued an opinion letter stating that employees can indicate their acceptance of the fluctuating workweek method of payment by continuing to work fluctuating workweeks and accepting payment of a fixed salary regardless of how many hours they worked. DOL Wage & Hour Division Opinion Letter - FLSA2009-3 (Jan. 14, 2009). Similarly, in Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir. 1999), the First Circuit noted that:

[T]he deposition testimony demonstrates that Valerio understood that her fixed weekly salary was to be compensation for potentially fluctuating weekly hours. She admits she was told that the hours were indefinite—“8:30 to whenever”—and that she understood that there “possibly” could be work days that would last longer than eight hours. She also understood, and accepted at the time, that Putnam did not intend to provide overtime pay if she worked more than 40 hours in a particular week. Additionally... [d]uring the first eleven months of her employment, Valerio routinely worked without complaint more than 40 hours per week without extra pay.

Id. at 39. Relying on these facts, the court held that there was a clear mutual understanding that “Valerio’s fixed salary would be compensation for however many hours she worked each week” and affirmed the district court’s use of the fluctuating workweek method of calculating overtime. Id. at 40.

In Mayhew v. Wells, 125 F.3d 216 (4th Cir. 1997), the Fourth Circuit held, while affirming the district court’s award of damages based on the fluctuating workweek method, that “the existence of [a ‘clear mutual understanding’] may be based on the implied terms of one’s employment agreement if it is clear from the employee’s action that he or she understood the payment plan.” Id. at 219. See also Zoltek v. Safelite Glass Corp., 884 F. Supp. 283 (N.D. Ill. 1995) (inferring an “implied-in-fact agreement” that employee was to receive the same salary regardless of how many hours worked where he had worked fluctuating hours for 30 months for a consistent salary and never protested).

In Griffin v. Wake County, 142 F.3d 712 (4th Cir. 1998), the court held that an employee need not agree to the use of the fluctuating workweek but only need understand its features, stating: “We are unable to find, and the EMTs [plaintiffs] have not identified, any case in which a court has required that employees consent to the fluctuating workweek plan to satisfy section 778.114—employees need only understand it.” Id. at 714. The court went on to hold that while the employer’s requirement that employees sign an explanatory memorandum is not necessary to demonstrate a clear mutual understanding: “it [the signed explanatory memorandum] is certainly probative of the employees’ clear understanding of the fluctuating workweek plan.” Id. In finding the requisite understanding, the Griffin court stated that the FLSA does not require that an “employer hold an employee’s hand and specifically tell him or her precisely how the payroll system works.” Id. at 717. See also Highlander v. K.F.C. Nat'l Mgmt. Co., 805 F.2d 644, 648 (6th Cir. 1986) (finding clear mutual understanding when employee signed form explaining calculation of overtime under the fluctuating workweek method); Condo v. Sysco Corp., 1 F.3d 599, 602 n.4 (7th Cir. 1993) (noting importance of the fact that employment contract contained chart illustrating method of overtime pay).

According to Samson v. Apollo Res., Inc., 242 F.3d 629 (5th Cir. 2001), an employer need not explain any details of the fluctuating workweek method other than that it compensates employees at a fixed salary for all hours worked in a workweek no matter their number. Id. at 637. See also, e.g., Cash v. Conn Appliance, 2 F. Supp. 2d 884, 907 (E.D. Tex. 1997) (adopting and applying this standard of the clear mutual understanding requirement).

b.Does the Clear Mutual Understanding Requirement Extend to the Method of Overtime Calculation?

The Department of Labor issued an opinion letter stating that there does not need to be a “clear mutual understanding” of the method used to calculate overtime pay, but rather that the “clear mutual understanding” applies only to the understanding that an employee’s salary would remain fixed even if their hours varied. DOL Wage & Hour Division Opinion Letter - FLSA2009-3 (Jan. 14, 2009), available at http://www.dol.gov/whd/opinion/FLSA/2009/2009_01_14_03_FLSA.pdf. Similarly, in Bailey v. County of Georgetown, 94 F.3d 152 (4th Cir. 1996), the Fourth Circuit rejected as “contrary to the plain language of the FLSA and [Section 114]” the notion that employers and employees who have adopted a fluctuating pay plan must understand the manner in which overtime pay will calculated. The court held that the parties must only have reached a “clear mutual understanding” that while the employee’s hours may vary, his or her base salary will not. Even in cases where “the record is replete with evidence that supports Plaintiff’s contention that he did not understand how his [overtime] pay was calculated,” the courts have applied the fluctuating workweek method while holding that there is no requirement that an employee understand how their overtime pay is calculated so long as there is a clear mutual understanding that their base salary remains fixed regardless of how many hours they work in a week. Lance v. Scotts Co., 2005 U.S. Dist. LEXIS 14949, at *20 (N.D. Ill. July 21, 2005).

Other courts have held that the clear mutual understanding requirement includes an understanding that employees will be compensated at an overtime rate of half their regular hourly rate. Monahan v. Emerald Performance Materials, LLC, 2010 U.S. Dist. LEXIS 17034 (W.D. Wash. Feb. 25, 2010) (holding that because the employees had been receiving no overtime pay, there could be no clear understanding between the parties regarding the rate of overtime pay and thus the fluctuating workweek method could not be applied).

·Garcia v. Port Royale Trading Co., 198 Fed. Appx. 845 (11th Cir. 2006) (deeming it sufficient that plaintiff understood how much he was paid, that he was paid in the form of a salary, that his hours fluctuated, and that he was paid under the fluctuating workweek method for three years).

·Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir. 1999) (requiring clear mutual understanding at the time of hiring that plaintiff’s weekly hours would fluctuate and that the fixed salary provided straight time compensation for all hours worked).

·Griffin v. Wake County, 142 F.3d 172 (4th Cir. 1998) (explaining that Section 778.114 does not require an employer to explain precise details of the administration of fluctuating hours plan).

·Flood v. New HanoverCounty, 125 F.3d 249, 252 (4th Cir. 1997) (holding that contemporaneous payment of an overtime premium is an essential prerequisite to using the fluctuating workweek method).

·Teblum v. Eckerd Corp. of Florida, 2006 U.S. Dist. LEXIS 6406 (M.D. Fla. Feb. 7, 2006) (rejecting argument that “mutual understanding” could not exist when employees did not know maximum hours they would be required to work).

Monday, June 21, 2010

·O’Brien v. Town of Agawam, 350 F.3d 279, 288-89 (1st Cir. 2003) (holding that variations in the weekly pay of law enforcement officers due to additional compensation for working night shifts prevented the finding of a fixed fluctuating workweek salary).

·Heder v. City of Two Rivers, 295 F.3d 777 (7th Cir. 2002) (collective bargaining agreement providing for overtime pay for every hour worked beyond a stated maximum was “incompatible with treating the base wage as covering any number of hours at straight time”).

·Ayers v. SGS Control Servs., Inc., 2007 U.S. Dist. LEXIS 19634, at *8-10 (S.D.N.Y. Feb. 27, 2007) (finding that inspectors did not receive a fixed salary because they received lump-sum “day-off pay” and “sea pay” for working on their days off and on offshore vessels).

·The Wage and Hour Division has ruled that occasional deductions for disciplinary reasons do not conflict with the use the fluctuating workweek method. WH Admin. Op. (Dec. 19, 1978); WH Admin. Op. (Dec. 29, 1978). But see Mitchell v. Abercrombie & Fitch Co., 428 F. Supp. 2d 735 (S.D. Ohio 2006) (rejecting argument that pay was not fixed salary because employees were subject to discipline if their work time and benefit (e.g., vacation) time did not add up to 40 hours a week).

·Conne v. Speedy Cash of Mississippi, Inc., 246 Fed. Appx. 849 (5th Cir. 2007) (holding that that deductions for vacation, personal days, sick days or other absences prevent the employer from making use of the fluctuating workweek method).

·Hunter v. Sprint Corp., 453 F. Supp. 2d 44 (D.D.C. Sept. 22, 2006) – The court ordered payment at the time and half rate because there was no clear mutual understanding as to whether the employee would receive the fixed salary if that employee worked less than a full-time schedule in a given week. The court found the following arrangement inconsistent with the use of the fluctuating workweek method: “Sprint maintained a policy that, unless an employee utilized earned leave (e.g., vacation or “floating holiday” time), it would deduct a full or partial day’s pay in the event that either (1) the employee was required to attend a court proceeding as a defendant or witness, or (2) the employee was unable to report to work due to inclement weather. . . . The unavoidable implication of this policy is that an employee who had exhausted his leave bank (or not accrued sufficient leave time) would have been docked by Sprint for such missed time.”

·Advea v. Intertek USA, Inc., 2010 U.S. Dist. LEXIS 1963 (D.N.J. Jan. 11, 2001) - The court held that plaintiffs were entitled to payment at the one and half rate because the prerequisites for application of the fluctuating workweek method were not met. Specifically, the court held that the record “demonstrates that Plaintiffs’ compensation for non-overtime hours varied, depending upon earned offshore pay, holiday pay or day-off pay . . . [D]ue to such payments, Plaintiffs cannot receive the fixed salary required to apply the [fluctuating workweek method].”

Firm Website

About Me

Robert Brian Fitzpatrick is the principal in the law firm of Robert B. Fitzpatrick PLLC in Washington, D.C. where he represents clients in employment law and employee benefits matters. Mr. Fitzpatrick has concentrated his practice in employment law disputes for over forty years. He has represented clients in individual and class actions. He has represented clients in employment discrimination, workplace harassment, retaliation, age discrimination, FMLA, ADA, whistleblower, wrongful termination, non-compete, trade secrets, Computer Fraud and Abuse Act, and wage and hour claims among others. He counsels numerous executive clients regarding employment agreements and compensation issues. He has negotiated literally thousands of severance agreements. He has represented clients in practically every industry and profession, including government employees, employees in the hospitality industry, the high tech/computer, government contractors, transportation, entertainment, sports, financial services, trade associations, and academia.

Subscribe To

Follow by Email

@FitzpatrickLaw

@FitzpatrickLaw

Disclaimer

Note: Robert B. Fitzpatrick makes this blog available for educational purposes only. None of the content on this blog constitutes legal advice. All postings should be considered general statements of the law, not legal advice specific to your situation. Your use of the site or contact with me does not create an attorney-client relationship.

This site contains links to other sites, comments, and other information not created by Robert B. Fitzpatrick. No representations are made about the accuracy of information posted on this or other linked sites. Though efforts will be made to post current information, the law is constantly changing, and articles go out of date very quickly. No one should rely on information obtained from this blog, comments, or linked articles without first obtaining appropriate professional advice.